One of the craziest things to watch as you are in the process of paying off debt of any kind is your credit score. Some people will tell you that credit cards are awesome for racking up points, getting free flights, cashing in on “sign up bonuses” and the list goes on. On the other end of the spectrum stands Dave Ramsey with scissors in one hand and soon-to-be-dismembered credit cards in the other. You know his gig.
I would say I stand somewhere in the middle with credit cards. I got my first one about a month after I turned 19. It had a pretty small credit limit – $1,000 from what I remember. I bought gas on it and usually paid it off on time. College started that fall and I found myself “needing” to use it for little grocery runs or for the occasional burrito at the local Santana’s taqueria. I was only working part-time as a student-worker so I wasn’t bringing in much for fun money, so the credit card was a way for me to spend a little more than what I had.
After college, I picked up another credit card when needing to buy flights, food, and other things while working abroad. I moved to Quito, Ecuador only weeks after graduating from college. I wasn’t making much with the organization I worked for, so once again the credit cards were an in between to get me by.
Things leveled out a bit when I came home and started my first “real world” job at a tech company in Bozeman. I was living with my parents and found I had a surplus since I wasn’t paying rent. I actually paid off all my credit card debt at that point. I still had over $24,000 in student loans, but I decided I could afford my first car loan – a $10,000 chunk I took out for my dream car at the time, a 2004 Mach 1 Mustang. One step forward, six steps back. But that is a story for a different blog post.
The height of my credit card stupidity hit when I moved to Missoula a short time after this. I had quit my job and had taken a long road trip in my Mach 1 through western Montana, northern Idaho, all the way through Washington, down the Oregon coast and eventually all the way to Redding, CA and then San Jose, CA. I didn’t have any savings so gas started going on the cards again. After that trip, I called Missoula home and I moved in with one of my best friends and his two roommates. I started my own LLC repairing computers. I had some small startup costs related to that, and once again the credit cards came into play. I always thought you had to “spend money to make money.” While business creation was an excellent experience, my financial decisions continued to be disastrous. I maxed out the couple of credit cards I had and was forced to get a part-time job working front desk at a local hotel for $9/hr. I was barely making ends meet, my credit limit almost topped out and barely able to make rent. It was a scary time.
I was blessed to get offered a huge promotion in four months of working at the hotel. I went from bringing in a couple hundred dollars a week to a full-time, $45,000/year job as a 24-year-old. I finally had the money! Or so I thought.
One thing I have learned and observed in this Figuring Out Finances journey is that poor money management is scaleable. I had made $9/hr. part-time and then was making almost $22/hr. full-time and I still had the same problem: I was spending more than I was making. Poor choices are indifferent to your race, your socioeconomic background, what state you live in or the kind of car you drive. Poor choices result in poor consequences, financial and otherwise.
I don’t want to drag this credit history story through the mud too much, but things got worse before they got better. Despite my much higher income (and a great raise a few months later, even!), I continued to outspend my income. Another credit card or two was opened and I was making minimum payments, making a car payment and scratching my head as to why I was so broke. By the grace of God, the tide shifted as I got engaged and realized I had to figure things out in a hurry if I was going to be able to take care of myself AND a wonderful new wife. The stupidity in my decisions subsided as we budgeted and turned things around, day after day, week after week, dollar after dollar. And here I am today with all the credit card debt in the rearview mirror as well as those student loans.
I almost forgot what the post was about, so forgive me. When I was making my worst decisions, my credit score was a wimpy 640 or so. As the debt was paid off and accounts closed, my score kept rising. I used the Credit Karma app to track it every step of the way. Once a week, you get a credit score update that reflects payments you’ve made recently and it helps you stay motivated. You have to game-ify debt payment sometimes to keep it fun, and watching my credit score rise is a lot of fun. Today, mine is knocking on the door of 800.
Credit Karma is free to sign up for and does not cost anything to use. The iOS app is awesome, and I’m sure the Android version is great as well. Beyond the gratification of watching your credit score go up over time, keeping an eye on your credit is wise in case someone tries to steal your identity or open up accounts or cards in your name. Credit Karma pushes you notifications to let you know when your score is updated, when an account is paid off or closed, or about any other credit-related activity that you may need to know about. It gives you a bird’s eye view of all that you owe in one place, keeps you safer from fraudulent activity, and it’s just plain fun to see your credit number!
The last word I will leave you with is that having a good credit score is only something to be proud of if you manage your debt well. Spending more than you have on credit cards, student loans, and car loans are all not advisable. As you work through whatever financial position you find yourself in, it is important to realize that a credit score is only a number that shows you how good you are at borrowing money… not a great thing to shoot for in life. Keep that in perspective and stick to that budget. You can do it!